In Re: Lehman Brothers , 703 F. App'x 18 ( 2017 )

16-2737, 16-2788
In Re: Lehman Brothers
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER
FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF
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ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX
OR AN ELECTRONIC DATABASE (WITH THE NOTATION ASUMMARY ORDER@). A PARTY CITING A SUMMARY
ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for
the Second Circuit, held at the Thurgood Marshall United States
Courthouse, 40 Foley Square, in the City of New York, on the
27th day of July, two thousand seventeen.
PRESENT: DENNIS JACOBS,
DEBRA ANN LIVINGSTON,
Circuit Judges,
GEORGE B. DANIELS,
District Judge.
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IN RE: LEHMAN BROTHERS HOLDINGS INC.,
AND LEHMAN BROTHERS INC.,
Debtors.
- - - - - - - - - - - - - - - - - - -
1EE LLC,
Plaintiff-Appellant,
-v.- 16-2737

Judge George B. Daniels, of the United States District Court
for the Southern District of New York, sitting by designation.
1
JAMES W. GIDDENS, AS TRUSTEE FOR THE
SIPA LIQUIDATION OF LEHMAN BROTHERS
INC.,
Defendant-Appellee.
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WAYNE JUDKINS,
Plaintiff-Appellant,
-v.- 16-2788
JAMES W. GIDDENS, AS TRUSTEE FOR THE
SIPA LIQUIDATION OF LEHMAN BROTHERS
INC.,
Defendant-Appellee.
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FOR APPELLANT 1EE LLC: DOUGLAS P. BAUMSTEIN, White &
Case LLP, New York, NY.
FOR APPELLANT WAYNE GREGORY L. REID, Reid
JUDKINS: Rodriguez & Rouse LLP, New
York, NY.
FOR APPELLEE: JAMES C. FITZPATRICK (James
B. Kobak, Jr., Gregory C.
Farrell, Karen M. Chau, on the
brief), Hughes Hubbard & Reed
LLP, New York, NY.
Appeal from a judgment of the United States District Court
for the Southern District of New York (Schofield, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED AND
DECREED that the judgment of the district court be AFFIRMED in
part and REVERSED in part.
In these tandem appeals, which have been consolidated for
decision, two former employees of Lehman Brothers Inc. (“LBI”)
-- Jonathan Hoffman (through his entity 1EE LLC) and Wayne
2
Judkins -- appeal from the judgment of the United States
District Court for the Southern District of New York (Schofield,
J.), which affirmed that part of the order of the Bankruptcy
Court for the Southern District of New York (Chapman, J.)
disallowing Judkins’s claim and most of Hoffman’s claim and
which reversed that part of the order allowing a portion of
Hoffman’s claim. We assume the parties’ familiarity with the
underlying facts, the procedural history, and the issues
presented for review.
On September 15, 2008, LBI’s parent company, Lehman
Brothers Holdings Inc. (“LBHI”), entered bankruptcy. The
following day, LBHI, LBI, and LB 745 LLC (another Lehman entity)
entered into an Asset Purchase Agreement (“APA”) with Barclays
Capital Inc. (“Barclays”) pursuant to which Barclays purchased
the bulk of LBI’s North American capital markets and investment
banking businesses. Under the APA, Barclays agreed to offer
employment to former LBI employees who worked in the acquired
businesses, and to accept certain compensation obligations with
respect to those who accepted (referred to as “Transferred
Employees”). Specifically, Article IX of the APA provided that
Barclays “shall . . . pay each Transferred Employee an annual
bonus (‘08 Annual Bonuses’), in respect of the 2008 Fiscal Year
that, in the aggregate, are equal in amount to 100 percent of
the bonus pool amounts accrued in respect of amounts payable
for incentive compensation (but not base salary)[.]” App’x at
1488. The APA further stated that “[s]uch 08 Annual Bonuses
shall be awarded on or before March 15, 2009 in such forms and
proportions as are consistent with [Barclays’s] customary
practices[.]” App’x at 1488.
After the bankruptcy court approved the APA, Barclays made
employment offers to former LBI employees, including Hoffman
and Judkins. Both individuals eventually accepted, and began
working at Barclays in the fall of 2008.
Hoffman had been a remarkably successful trader at LBI
whose compensation was governed by a series of annually
negotiated contracts. In 2007 and 2008, his contracts provided
for a base salary of $200,000 plus an annual bonus (payable in
a combination of cash and equity awards) based on a percentage
of net profit he generated: twelve percent of the first $25
3
million and fourteen percent of anything beyond that, less his
base salary. His bonus each year was to be paid in two
installments: 75 percent in cash and equity awards early the
following year; the rest in cash early the year after that,
subject to “clawback” if he lost money for LBI during the
previous year.
The bankruptcy court calculated that, under these
contracts with LBI, Hoffman was owed: (1) approximately $7.7
million in cash in early 2009 as the second installment of his
2007 bonus; (2) approximately $62.3 million in some combination
(at LBI’s discretion) of cash and equity awards in early 2009
as the first installment of his 2008 bonus; and (3) assuming
he traded profitably in 2009, approximately $18.9 million in
cash in early 2010 as the second installment of his 2008 bonus.
Thus, the parties agree that when LBI entered liquidation,
Hoffman was owed a total of approximately $83 million in
bonuses.
Barclays’s employment contract with Hoffman provides for
payment (in cash and equity awards) of $83 million on top of
the same general compensation package he had with LBI ($200,000
base salary plus twelve/fourteen percent bonus). Of the $83
million, $70 million was to be paid in three installments
between February 2009 and February 2011, and $13 million was
to be paid through increased performance incentives in 2009 and
2010. Hoffman ultimately received the $83 million, plus an
additional $100 million in compensation for his trading
performance at Barclays in 2008 to 2010.
Unlike Hoffman, Judkins’s time at LBI was brief. He was
hired as a trader in January 2008 under a contract that entitled
him to an annual salary of $200,000 plus a minimum bonus of
$800,000 (to be paid in early 2009 in a combination of cash and
equity awards). He claims that his managers at LBI also orally
promised to pay him a performance bonus.
When Barclays hired Judkins in October 2008, it agreed to
pay him the same $200,000 base salary plus his guaranteed 2008
bonus of $800,000. Judkins received the $800,000 bonus, in
cash, in February 2009.
4
In 2009, Hoffman (through 1EE LLC, an entity he formed for
the purpose of asserting his bankruptcy claim) and Judkins both
filed claims against the LBI estate for their bonuses. The
Trustee for the liquidation of LBI objected. After a three-day
merits hearing, the bankruptcy court found that Barclays
ultimately paid appellants the full value of the outstanding
bonuses they were owed. However, it concluded that because the
$7.7 million paid to Hoffman for his 2007 bonus was outside the
scope of the obligations delegated to Barclays under the APA,
Hoffman could pursue a $7.7 million claim in the bankruptcy.
The district court affirmed in part and reversed in part.
It ruled that, regardless of the scope of the delegation in the
APA, appellants could not claim any part of their bonuses
because they accepted payment of those bonuses from Barclays.
On appeal from the district court, we make an independent
and plenary review of the bankruptcy court’s decision. Celli
v. First Nat’l Bank (In re Layo), 460 F.3d 289, 292 (2d Cir.
2006). We review conclusions of law de novo and findings of
fact for clear error. Id.
1. Appellants contend that LBI still owes them their
bonuses. We disagree, except with respect to Hoffman’s $7.7
million bonus for 2007.
The bankruptcy court found that appellants and Barclays
understood that Barclays would pay the bonuses LBI owed
appellants. This factual finding is supported by the record
-- including testimony by appellants and several other
witnesses, numerous exhibits, and contract negotiations
surreptitiously recorded by Hoffman. It is not clearly
erroneous.1
1
The bankruptcy court did not err by looking beyond the
appellants’ employment contracts for evidence of the parties’
intent. Where, as here, contracts are silent on the issue,
courts may consider extrinsic evidence. See Palmieri v.
Allstate Ins. Co., 445 F.3d 179, 187 (2d Cir. 2006) (observing
that “a court should . . . giv[e] due consideration to the
surrounding circumstances and apparent purpose which the
5
It is undisputed that Barclays paid the $83 million and
$800,000 that LBI owed Hoffman and Judkins, respectively. The
entire payment to Judkins and all but $7.7 million of the payment
to Hoffman were “08 Annual Bonuses” made to “Transferred
Employees,” App’x at 1488, and so were obligations delegated
to Barclays under the APA.2 Although the delegation did not
extinguish LBI’s obligation to pay these bonuses, Barclays’s
performance (its payment of the bonuses) did.3 See
Contemporary Mission, Inc. v. Famous Music Corp., 557 F.2d 918,
924 (2d Cir. 1977) (“[M]ost obligations can be delegated – as
long as performance by the delegate will not vary materially
from performance by the delegant. . . . If the delegate fails
to perform, the delegant remains liable.”); Headrick v.
Rockwell Int’l Corp., 24 F.3d 1272, 1278 (10th Cir. 1994) (“[I]f
the delegate performs the duty, the duty is discharged, and
obligor owes obligee nothing.” (internal quotation marks
omitted)).
The $7.7 million owed to Hoffman for his 2007 bonus is a
different matter. The bankruptcy court found that this amount
lay outside the scope of the delegation in the APA (meaning
Barclays had no obligation to pay it), and we find no error in
that determination. Relying on the law governing unjust
enrichment, the Trustee contends that, although the APA has been
understood not to cover 2007 bonuses, it would be inequitable
to allow Hoffman’s claim to the extent of his 2007 bonus in light
of all Hoffman was paid under his agreement with Barclays. But
parties [to a contract] sought to accomplish” (internal
quotation marks omitted)).
2
Contrary to appellants’ contention, section 365 of the
Bankruptcy Code, which governs the assumption and assignment
of executory contracts, did not prohibit LBI from delegating
its bonus obligations. It is undisputed that LBI did not
assign, and Barclays did not assume, appellants’ employment
contracts.
3
Hoffman emphasizes that the structure and timing of Barclays’s
payments varied from the terms of his contract with LBI.
However, Hoffman agreed to these variations -- which, in any
event, were, the bankruptcy court found, in this case not so
material as to invalidate Barclays’s performance -- and he
received the entire amount owed to him.
6
Hoffman’s employment agreement with Barclays required him to
generate substantial profits for Barclays before earning the
full amount promised under that agreement, and we therefore find
nothing inequitable about allowing him to pursue his liquidated
and unpaid 2007 bonus claim against LBI in bankruptcy. See
Georgia Malone & Co., Inc. v. Rieder, 19 N.Y.3d 511, 516 (2012)
(“An unjust enrichment claim is rooted in the equitable
principle that a person shall not be allowed to enrich himself
unjustly at the expense of another.” (internal quotation marks
omitted)); cf. Mathias v. Jacobs, 238 F.Supp.2d 556, 569
(S.D.N.Y. 2002) (explaining that the recovery sought by the
plaintiff would amount to unjust enrichment because, under the
plaintiff’s theory of the case, “in exchange for no additional
consideration other than [the plaintiff’s] ‘patience’ in not
pressing a $1 million debt, Jacobs bestowed upon him interests
in securities . . . with a cash value exceeding $3.4 million
and . . . still remains personally liable to [the plaintiff]
for the full amount of the original debt[,]” or nearly $8
million).
2. Judkins contends that Barclays was required to pay
additional sums orally promised by his LBI managers. This
argument fails because LBI’s bonus policy made clear that
employees had no entitlement to bonuses unless guaranteed in
writing.4
3. Hoffman asserts that LBI should be judicially estopped
from arguing that Barclays satisfied LBI’s 2008 bonus
obligation to him because LBHI took a contrary position in prior
litigation. However, judicial estoppel does not apply,
because this contrary position was taken by LBHI rather than
by LBI, and because it was not adopted by a court. See Adelphia
Recovery Tr. v. HSBC Bank USA, Nat’l Ass’n (In re Adelphia
Recovery Tr.), 634 F.3d 678, 695-96 (2d Cir. 2011) (“Typically,
4
Because Judkins was not entitled to a bonus beyond the $800,000
guaranteed in his contract, his attempt to seek relief under
the New York Labor Law is unavailing. See Tierney v. Capricorn
Inv’rs, L.P., 189 A.D.2d 629, 632 (1st Dep’t 1993) (holding that
a “plaintiff cannot assert a statutory claim for wages under
the Labor Law if he has no enforceable contractual right to those
wages”).
7
judicial estoppel will apply if: 1) a party’s later position
is clearly inconsistent with its earlier position; 2) the
party’s former position has been adopted in some way by the court
in the earlier proceeding; and 3) the party asserting the two
positions would derive an unfair advantage against the party
seeking estoppel.” (internal quotation marks omitted)).
Accordingly, and finding no merit in appellants’ other
arguments, we hereby AFFIRM the judgment of the district court
with respect to the disallowance of Judkins’s claim and
Hoffman’s claim for his 2008 LBI bonus, and REVERSE with respect
to the disallowance of Hoffman’s claim for his 2007 LBI bonus.
FOR THE COURT:
CATHERINE O’HAGAN WOLFE, CLERK
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